More Evidence Says Corn to Stay Tight

Corn stocks are tight, demand is staying strong, and competition for acreage is tough.

More evidence of strong corn markets piled up in recent days from the Agricultural Outlook Forum, trade reports, and private analysts.

Net corn export sales of 1.5 million metric tons in the week ended Feb. 17 set a marketing-year high, up 46 percent from the prior week and up 62 percent from the previous four-week average, reported the U.S. Department of Agriculture's Foreign Agricultural Service Feb. 25. Wheat export sales were up 68 percent from the previous week and sorghum sales hit a marketing-year high.

Grain and oilseed markets likely will stay tight despite increased corn and soybean production this year due to strong demand for exports and biofuels, USDA Chief Economist Joseph Glauber told the USDA Agricultural Outlook Forum last week. “Unless this year's weather is better than normal or plantings increase more than expected, stock levels for corn and soybeans should see only modest rebuilding in 2011-12,” he said in his outlook report. “This will likely mean continued volatility in those markets.”

The United States has little cushion of corn and soybean supplies in the event of adverse weather, noted USDA-FAS economist Michael Jewison in his outlook presentation. USDA projects U.S. planted area for corn up 3.8 million acres from last year to 92 million and for soybeans up 0.6 million acres to 78 million.

“If weather is perfect here and abroad we won't run out,” says PFGBest analyst Tim Hannagan. Season-ending corn stocks less than 1 billion bushels are dangerously low, he says, and the 2011-12 corn marketing year will start more bullish than the current year. “There is less than no room for error in the growing season,” says Hannagan.

USDA analysts expect U.S. plantings of major field crops to increase 9.8 million acres from last year to nearly 255 million acres, the largest year-to-year change since 1996. The biggest expected gains are 3.8 million for corn and 3.4 million for wheat.

“We know what we need to plant, but realistically, what can we plant?” asks Hannagan. Despite the demand for major crops, USDA expects land in the Conservation Reserve Program (CRP) to increase slightly this year. More than 31 million acres are enrolled in CRP, and the acreage cap under the 2008 farm bill is 32 million acres. The next general signup will run from March 14 through April 15.

“We have to steal acreage from other crops,” says Hannagan. Given lofty prices for cotton, soybeans and other grains, plus programs for crops such as peanuts and tobacco, acreage targets are few. Acreage projections in USDA reports indicate that even the department's analysts don't think farmers can find much more land to plant.

“This is one of the lowest early estimates of carryover we've ever seen,” says Hannagan, citing USDA's projection for corn carryover of 865 million bushels at the end of the 2011-12 year. “So we're one drought away from running out this year and next year.”

Hannagan says people assume that USDA analysts are stretching prospective acreage for corn and soybeans, and they worry that growers will plant less than projected.

“The March 31 Plantings report will be a huge report,” he says. “The market should rally into it because of fear.”